Financial Service Updates: RG 259 and AUSTRAC's New Guidance Material

RG 259: It’s the Final Countdown

Responsible Entities (REs) have just four weeks before ASIC's facilitative period for compliance with RG 259 comes to an end.  RG 259 clarifies ASIC's expectations in relation to REs fulfilling their risk management obligations and suggests that wholesale fund managers, managed discretionary account operators and IDPS operators would also benefit from the guidance. Although ASIC recognises that most REs have been undertaking risk management to some degree, documented systems, proper practices and procedures and well-considered and documented risk appetites have not been adequate.

Key Requirements of RG 259

Below is a summary of the key requirements of RG 259:

  • A risk management framework in which to identify, analyse, evaluate and treat risks at both the RE and Scheme level. As good practice, REs should be including these findings in their compliance plans and a summary of their risk management systems in their PDS. Practically speaking, this means a policy which outlines your methodology for identify, classifying and assessing material risks and a risk register documenting and rating your material risks.
  • Having a documented risk appetite in place which is translated into risk register.
  • Material risks such as strategic, governance, operational, market and investment and liquidity risk should be actively considered and documented. This list is not exhaustive, but it highlights key risk areas which are considered as fundamental to the industry’s integrity.
  • Protocol to undertake regular (annual) reviews of risk management framework to ensure that risks and the assessments remain relevant, are adequate and effective. In addition, ASIC suggests it is good practice to undertake an independent risk review by an external party every three years.
  • Conduct annual stress testing and/or scenario analysis of scheme liquidity risks. If, in any given year, an RE decides not to undertake stress testing and/or scenario analysis, that the reasoning to support such a decision be documented and subject to Board Approval.
  • Regular reporting to the Board and compliance committee as appropriate. The Board should lead the risk management structure and ensure that staff are trained in the practices and procedures to ensure that compliance is effective.

ASIC's corporate plan has identified this area to be subject to ongoing surveillance and ASIC will expect all REs to be actively undertaking the above by 27 March 2018. Licensees found to be in breach will be held accountable. For a more in depth analysis of the requirements please see our previous blog.

New Guidance from AUSTRAC on Beneficial Owners

AUSTRAC has released new guidance material to help reporting entities understand and comply with their beneficial owner identification requirements. The guidance has been published in response to feedback from businesses and past compliance assessments conducted by AUSTRAC, which sought to clarify the key steps for reporting entities to determine beneficial ownership.

The fact sheet sets out the main beneficial owner identification obligations and describes AUSTRAC’s expectations in terms of meeting these obligations. In particular, it details the information to consider when on-boarding new non-individual customers, and when undertaking ongoing customer due diligence of existing non-individual customers.

The guidance highlights the requirement for reporting entities to keep records of the beneficial owner identification processes undertaken, a step which is often overlooked.

AUSTRAC cites the Paradise and Panama Papers as examples of how businesses can be exploited by criminals through complex ownership structures. At CompliSpace, we regularly assist clients with the practical challenges of identifying beneficial owners.

AUSTRAC's Beneficial Owner obligations guidance can be found here.

AFSL Workshops - Final Call

It's our final call for our AFSL workshops being held this Friday 2 March in Sydney and next Friday 9 March in Melbourne. These workshops are always useful to keep up to date with your AFSL requirements and understand ASIC's key areas of focus and concerns for the year ahead.

Click here to reserve your place for either:

Sydney or Melbourne

Financial Services Updates

Financial Services Updates